SC pension fund rebounds in 2nd half of 2012

COLUMBIA, S.C. (AP) -- South Carolina's pension fund investments rebounded in the second half of last year, pushing earnings above 12 percent for 2012 after fees.

The fund is on its way to a successful 2013 and meeting long-term expectations, said Hershel Harper, chief investment officer for the state Retirement System Investment Commission.

"We may finish even better than expected," he said about 2012-13.

The state assumes a 7.5 percent annual return when calculating what it needs to keep the system solvent for decades to come for the more than 225,000 public workers statewide promised a pension.

The fund's annualized return for the three-year span ending Dec. 31 was 8.3 percent, according to numbers the commission released Monday, which updated estimates provided last month as part of its 2011-12 year-end report.

The portfolio's worth was $26.6 billion at year's end, or $400 million more than in summer 2011, despite earnings that added $3 billion in 2012.

Payouts partly explain why it's not worth more. The system has been transferring $2 billion yearly for the roughly 130,000 retirees drawing pensions, while taking in $1 billion from workers, according to the commission.

The calendar year earnings of 12.39 percent for 2012 also are a sharp contrast to those at the close of last fiscal year. Investments earned just 0.4 percent after fees for the four quarters ending June 30, due to a rough last half of 2011.

However, Harper said, considering the market volatility of that period — with key reasons including the downgrading of the U.S. credit rating and the debt crisis in Europe — "to be down only 4 percent is not bad."

"This is a good illustration of why it's important to look at these things over a longer period of time as a way to assess performance," commission spokesman Danny Varat said.

The commission, created in 2005, has not previously released a calendar-year update.

The 2011-12 fiscal year was the third consecutive year that investments ended in the positive, following big losses amid the Great Recession.

The state's assumed rate of return had been 8 percent until November 2011, when the Budget and Control Board reduced it to 7.5 percent, saying that was more realistic. That's the rate legislators used to write the pension reform law designed to reduce long-term liability and keep payments flowing for decades.

That law, signed last June, should reduce that $1 billion difference between what's coming in and going out.

It required employees to contribute more of their income toward their retirement benefits — an additional 1.5 percentage points over three years, to 8 percent. The law kept employer contributions — the part funded by taxpayers — at 10.6 percent.

But the performance of the pension fund investments didn't impress the commission's only elected official, Treasurer Curtis Lofts. Loftis has been highly critical of the commission and has threatened to stop writing checks on signed investment contracts unless his staff is given access to documents that were limited to the commission and its staff.

Loftis said the Investment Commission again failed to do better than most large pension plans and its performance means public employees and taxpayers have to put more money than they should into the retirement system.

"Our Investment Commission continues to pay too much in fees and earn too little in returns and our overly complex portfolio places the system at risk," Loftis said.